Bank of America Earnings: Lower Net Interest Income, One-Time Charges Have Impact

Key Morningstar Metrics for Bank of America

• Fair Value Estimate: $35.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Bank of America’s Earnings

Bank of America BAC reported fourth-quarter earnings per share of $0.35, lower than the FactSet consensus estimate of $0.53. Results were affected by an FDIC special assessment of $2.1 billion for uninsured deposits of certain failed banks, which reduced EPS by $0.20, and a noninterest income charge of $1.6 billion as a result of the cessation of the Bloomberg Short-Term Bank Yield Index, which reduced earnings by $0.15 per diluted common share. Excluding the nonrecurring charges, reported EPS came in at $0.70, largely in line with our expectations.

Shares have rallied around 30% from their October-end lows, as the market got excited about the prospect of interest rate cuts by the Federal Reserve in 2024. Investors penalized the bank earlier in 2023 for its longer-duration securities exposure when interest rates were rising. The longer-duration securities portfolio weighed on the company’s net interest income, as these assets were stuck on the books while earning lower yields. The prospect of lower interest rates in 2024 has eased some concerns about the banks’ long-duration exposure and unrealized losses.

We think Bank of America’s balance sheet is well-positioned for rate cuts, and that net interest income should hold up reasonably well. We do not plan to materially change our $35 fair value estimate as we fully incorporate fourth-quarter results. The bank is now trading close to that estimate, and we believe investors should wait for a bigger margin of safety as they consider this name.